NEW YORK—The Federal Reserve Bank of New York today released its latest Small Business Credit Survey, a representative survey that highlights the credit experiences of small businesses in New York, New Jersey, Connecticut and Pennsylvania. Survey results indicate a good credit market for experienced and profitable firms and a generally positive business outlook for the first half of 2014. More than half of credit applicants were approved for credit and nearly two in three that were approved received all the credit they sought. Profitable firms that applied for large amounts of capital (over $100,000) were among the most successful applicants. The survey also found that managing uneven cash flows was the top business concern, ranking above access to capital for the first time since 2010, when the survey began.
Firms reported an overall positive outlook for the first half of 2014. More than half of respondents expected revenues to increase and 30 percent expected to add employees, compared to 19 percent that reported adding employees in 2013. Twenty-nine percent of firms (similar to first half of 2013) plan to apply for credit in the first half of 2014 and 18 percent are considering applying.
Despite the positive signs, small businesses also reported high credit search costs and a more challenging credit market for firms seeking $100,000 or less in capital. Searching for capital was time consuming—for both profitable and unprofitable firms. On average, firms spent 26 hours searching and applying for credit, contacted three financial institutions and submitted three credit applications. Firms that applied for $100,000 or less had a 46 percent approval rate versus a 60 percent approval rate for firms seeking more than $100,000 in financing.
Additional findings:
- The top reason firms sought credit was to manage day-to-day operation expenses; applicants continue to rely on real estate collateral, especially personal real estate, to secure debt.
- More than one in four firms applied for expansion capital, up from previous surveys.
- Most applicants reported needing small amounts of capital ($100,000 or less).
- Sixty percent of firms carried debt; majority of firms hold $100,000 or less.
- Successful applicants are previous debt holders, more profitable and seek higher loan amounts.
- Profitable firms were not only more successful in applying for credit but were also more likely to experience positive interest rate changes on existing debt.
